Six area school district superintendents addressed the media this morning to relay to the community their recommendations for a “Shared Responsibility Approach” to the Kentucky Teachers Retirement System (TRS).

This is in response to proposed changes to the state pension fund that are expected to be released by Gov. Matt Bevin’s administration in advance of a special legislative session in November. The current proposal is to shift the TRS into a Sociel Security/ 401(k) Plan. Historically, teachers have been excluded from 401(k) because TRS is more secure and less expensive than Social Security.

Matt Robbins, Superintendent of Daviess County Schools, explained that teachers do not pay into Social Security and therefore can not receive any Social Security benefits, either from a public job they may have held or from a spouse. They are therefore completely dependent on TRS for retirement.

Since 2008, the legislature has failed to pay $1.9 billion, which has caused a compounding effect. Currently, the KRS is $33 billion in debt. The issue has lasted several administrations crossing different political parties.

Robbins says the issue influences everyone for three reasons:

The proposed pension reform could impact the quality of teachers.

It affects the quality of education of our children.

And it increases the cost to taxpayers.

“We do not think the current proposal is what’s best for our teachers and retirees,” said Scott Lewis, Superintendent of Ohio County Public Schools, explaining that adding teachers to Social Security is a liablility because the Social Security system is already stressed with projections that it will run out of money by 2034. “It doesn’t make sense to add more people to the Social Security payroll and escalate the depletion of those funds.” Additionally, Lewis stated Social Security is controlled by the Federal governmnet, so the state would lose control which further inreases risk to Kentucky taxpayers.

Recruitment and retention of teachers is also a concern with the newly proposed 401(k) pension reform plan. “There will be an impact on our youth,” said Kyle Estes, Superintendent of Hancock County Schools. “We all know that teachers do not enter the field because of the pay or benefits. But one major draw is the retirement system. If the pension promise is broken, this profession will be less attractive to future generations.” Estes’ concern is that under the new proposed plan, teachers will retire early and move away to teach in other states. “We will lose some of our best teachers, which will hurt kids and produce a negative economic impact at the same time.”

Shared Responsibility Approach:

“For our purposes we support a shared responsibility solution, where we work together – both employees/employers and retirees for what is best for Kentucky,” Robbins explained. “And most importantly, what is best for Kentucky’s kids. Kentucky must undergo significant tax reform that results in more revenue. This affords all people a better plan that costs less to support and maintain and supports growth for Kentucky.”

A similar shared responsibility approach was used in 2010 to fix the health insurance fund. In that case, over a six year period, employees (teachers), employers (Boards of Education), and the state each contributed 3% toward the solvency of the health insurance fund.

“We feel like we’ve accomplished a Shared Responsibility Approach successfully with the health insurance fund, and we feel like that’s achievable again,” Robbins said. “In fact, there aren’t any other options at this point that we could entertain.”

What can we do?

“This issue will affect every taxpayer and every resident in Muhlenberg, McLean, Ohio, Hancock, Daviess County, and Owensboro – and everyone else in Kentucky,” said Robert Davis, Muhlenberg County Superintendent. “We are working with one another and doing our best to ensure everyone is aware this issue is not limited to teachers or school employeers or government workers.”

Davis, speaking for the other five superintendents in attendance, asked for everyone to get involved first by being informed. Then by contacting their elected officials by calling the Legislative Call Center at 1-800-372-7181.

“We are asking people to relay this message: ‘We support a Shared Responsibility Plan to sustain the Kentucky Teachers Retirement System. We do NOT support a Social Security/401(k) Plan.’ ”

Dr. Nick Brake, Superintendent of Owensboro Public Schools, emphasized that economic growth is spurred by investing in education. “We have to remember that schools are successful, and kids are successful, because of excellent teachers! We simply can not afford to risk a future in which school districts are bankrupted by crushing financial liabilities – while at the same time risking an exodus of educators.”

Comments 1

If you currently are in the teaching profession the contributions that you make towards the pension plan are to pay for current retiree benefits, not yours. There is no guarantee that there will be someone there to pay yours when it’s your time to leave the workforce. If you are offered a buyout and the option to convert to a social security/401K type plan you will be investing in “your” future and “your” retirement. Not someone else’s.

Running possible numbers through a compound interest calculator and using conservative numbers, a forty year old still has time to possibly retire wealthy. At 40 years old, a $60,000 dollar buyout, maximum contribution numbers used in the recommendations of 9% employee and 5% match from employer. Here is the possibilities in a 401K account balance at age 60.

Vanguard has a health care fund that has return an average of 16.59% for 33 years.
using that 16.58% ROI the account balance goes to $2,201,700.00

There are several mutual funds that average the return rates mentioned above. The professional money managers of the public pension system can’t average 7% ROI. If you question that, why did actuaries have to reduced the actuarial assumption rate from 7.5% to 6.25%?

Supporters of the public pension system will have you believe that 401K style plans are expensive and more risky than money in the public pension system. This is a lie. Public pension contribution are invested in the same stock market as 401K. But for me at least, I use published historic return on investment for my investment decisions and not future assumed rates of return like the public pension system.

Supporters of the public pension system will have you believe that 401K style plans are expensive to manage. The expense ratio for the Health care fund I mentioned that has averaged 16.59% is .32%, probably 50-75% lower than the ratio in the public pension system. For every $100,000 dollars the annual fee would be $320.00.

Supporters of the public pension system will have you believe that 401K style plans have been tried and failed in the past. That is due to lack of training and education offered in how manage a 401K plan.

If offered a buyout option it is in your best interest to take the option. I will help anyone that needs it through the process. It may be frightening at first but it’s much easier than you think.

I am proof that one can start a 401K plan at the age of 40 and build enough wealth to be financially comfortable and still retire at age 60-62.

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